The end of a death spiral Fannie Mae revives Town & Country Trust with millions in loans

Real estate

"Basically, we were in a death spiral," said Schulweis of Town & Country Trust's performance over the past few years.

Schulweis may not be shy in his confession, but he's at least being honest.

The Baltimore real estate trust specializes in apartment properties, but since going public in August 1993 it has been riddled with troubles surrounding debt maturity. This restricted its ability to buy new apartment complexes, which in turn hurt its stock price.

But these days, Schulweis' comments regarding Town & Country's problems are all in the past tense. Notice, for instance, that Schulweis said "were."

That's because, thanks to as much as $450 million in new financing from Fannie Mae, the local real estate investment trust is off life support.

"The financing lifts a cloud of uncertainty," said Michael Fusting, a managing director of Corbyn Investment Management Inc., a Lutherville firm that is one of Town & Country's largest stockholders, with 600,000 shares. "Town & Country has been on the sidelines for several years, and this puts them back in the game."

But more than replacing $300 million in debt due in August, the Fannie Mae loans will give Town & Country the financial wherewithal to buy new properties -- something the company has been prevented from doing because of debt problems that hurt its ability to raise capital.

Making up for lost time, Town & Country plans to spend up to $160 million to acquire as many as 5,000 new apartment units over the next two years, a move that would increase its portfolio by a third.

In all, Town & Country owns 35 apartment complexes with 13,630 units.

"We're dead serious about expanding the size of this company now," Schulweis said, a counter to Wall Street criticism that Town & Country has been slow to buy new properties to increase its operational income levels.

Schulweis said the company will expand from its current geographic focus on Maryland, Delaware and Pennsylvania, and will consider acquiring complexes as far north as New England, as far west as Kansas City and as far south as Florida.

For the first time, the company also is considering developing new units adjacent to existing projects in Maryland and Pennsylvania, although Schulweis declined to reveal specific sites.

Moreover, Town & Country will use roughly $25 million from the new financing to fix up its properties, many of which are more than 30 years old and need new roofs, carpeting, appliances and cosmetic improvements.

"It's a major transformation of a company that has been catatonic for the past three years," Schulweis said. "At the same time, we took care of our refinancing risk, our perceived dividend maintenance problem and [have] money to upgrade our properties."

The new debt carries a 10 1/2 -year maturity and an average 6.91 percent interest rate.

But Schulweis and industry experts contend that buying apartments today is tough: Prices have risen dramatically as the pace of new development, extremely fast in the early 1990s, has slowed to a trickle.

"The multifamily market is a very active one right now," Schulweis said.

"There's a lot of trading of properties because of a perception that now is the time to sell. The question is whether this is the right time to buy. We think so, but we'll have to evaluate properties as they become available."

Wall Street appears to be responding favorably to Town & Country's moves. Since the Fannie Mae loan closed in mid-September, New York investment firms like Goldman, Sachs & Co. have been issuing favorable research reports about the company, and Schulweis has been lobbying for even greater Wall Street coverage.

Perhaps more importantly, the REIT's stock is up about $4 per share on the New York Stock Exchange -- the biggest surge in the trust's more than four-year history as a public company.